Advertising Escapes the Tax Man in Health-Care Bills -- for Now

Neither Senate Nor House Goes After Tax Deductibility

NEW YORK (AdAge.com) -- After being under government scrutiny for most of 2009, the advertising industry won one -- for the moment, anyway.

The health-care reform bill passed by the U.S. Senate on Christmas Eve did not contain a provision that would disallow the tax deductibility for prescription drug advertising. Since the provision was not in the House of Representatives' version of the bill, either, it cannot be added to the bill that President Barack Obama will eventually sign into law.

But the issue isn't over.

"The Senate and the House will always be looking out of the corner of their eye at the tax deductibility issue," said Dick O'Brien, exec VP and director of government relations for the American Association of Advertising Agencies. "This is just a starting point. The bill that the President will sign will be modified and amended in the coming months and years, I promise you that."

"They say in Washington that a bad idea never completely dies," said Mr. Rector, exec VP-government relations for the AAF. "There is legislation out there, and there are folks who have said they want to move forward in this area. As long as there are [pharmaceutical] ads out there, it will keep reminding some [politicians] that the issue is relevant."

Still, score one for the 4A's, the AAF, the Association of National Advertisers and the Advertising Coalition. Managing to persuade both the House and the Senate to remove the proposed tax-deductibility provision from their respective health-care reform bills was a huge achievement for the extended advertising and media industry, and a case study in Lobbying 101 and behind-the-scenes maneuvering on Capitol Hill.

It was a six-month effort that began in June, when Rep. Charles Rangel, D-N.Y., chairman of the powerful House Ways and Means Committee, proposed paying for health-care reform by denying pharmaceutical companies from taking tax deductions on direct-to-consumer advertising of prescription drugs. That would save $37 billion over 10 years, Mr. Rangel said.

Mr. O'Brien and Jim Davidson, head of the Ad Coalition, began making near-daily appearances on the Hill, talking up a number of Representatives.

"It took us about six weeks to cover all the important people we had to cover," Mr. O'Brien said. "We made the case, and made it convincingly, that disallowing the tax deductibility would lead to drug companies doing less advertising, which would lead to less jobs in the ad industry, less jobs at production companies, and so on."

When Mr. Rangel agreed not to put such legislation in the House's version of the bill, the ad industry breathed a sigh of relief. Four months later, Sen. Al Franken, D-Minn., along with co-sponsors Sens. Sherrod Brown, D-Ohio, and Sheldon Whitehouse, D-R.I., introduced legislation to disallow the federal tax deduction for all advertising and marketing expenses for prescription drugs. Titled the "Protecting Americans from Drug Marketing Act," Messrs. Franken, Brown and Whitehouse asked to amend the Internal Revenue Code of 1986 "to deny the deduction for advertising and promotional expenses for prescription pharmaceuticals."

"It was a serious threat," Mr. O'Brien said. "The Senate is different from the House. In the Senate, any senator can add an amendment to any bill at any time. It's not as focused and organized and streamlined as it is in the House. This tax deductibility issue became a precarious, volatile situation in the Senate. This truly was a red alert."

Mr. O'Brien said that this time, on his treks to the Hill, he made strong appeals to New York senators Charles Schumer and Kirsten Gillibrand.

"The proposal to eliminate the tax deductibility would have been a real job killer to the advertising industry in New York," he said. "We made the case persuasively to not include that language in the Senate version of the bill."

Still, the threat remains. It is not a matter of "if," but "when," they say.